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Monday, May 06, 2002

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Board-level appointments -- DCA to tighten norms for relatives of directors

Richa Mishra


RELATIVES of directors may no longer find it easy to secure board-level posts. The Department of Company Affairs (DCA) proposes to further strengthen the norms pertaining to the appointment of relatives of directors on the board of a company.

"The move is with an intention to safeguard public interest,'' official sources told Business Line. Brushing aside the speculation that the department has initiated such a move based on certain complaints received against some companies, the sources said that the purpose behind further strengthening of the provisions is to ensure that public money is not misused.

Section 314 (1) of the Companies Act, 1956 provides that a director and others will not hold office or place of profit without the consent of the company accorded by a special resolution.

Besides, Section 314(1)(b) further states that no partner or relative of such director; no firm in which such director, or a relative of such director, is a partner; and no private company of which such director is a director or member; and no director or manager of such a private company, shall hold any office or place of profit carrying a total monthly remuneration of such a sum as may be prescribed.

The department had asked the Institute of Company Secretaries of India (ICSI) to examine the issue and give its recommendation. ICSI is understood to have submitted its suggestions to DCA on May 3.

The institute is said to have suggested setting up of a selection committee comprising a non-executive director and professionals among others, to look into such cases. Further, it has also recommended that the relatives of directors should be treated on the same grade as the other employees of the company.

"The department wants to be more transparent, and therefore, it proposes to set out these broad parameters. The intention is to ensure that similar prerequisites are applied for the appointment of relatives as well,'' sources said.

Meanwhile, industry sources argue that the existing provisions of the Act are clear on the issue and there was no need for the department to bring in any further changes.

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